When Good Intentions, Bad Drafting and Regulatory Zeal Collide

The International Remittance regulations mandated by Section 1073 of the Dodd-Frank Act are once again under the regulatory spotlight. Yesterday was the deadline for submitting comments weighing in on CFPB’s proposal to delay the effective date of these regulations, which are currently slated to take effect on February 7th. It is widely expected that the effective date will be pushed back. You have until January 30th to weigh in on two proposed amendments to the remittance regulations. They are a step in the right direction, but don’t go far enough as currently drafted.

For those of you who don’t make 100 international electronic wire transfers a year of over $15 in value, you can breathe a sigh of relief as these regulations don’t apply to you. But for those of you unfortunate enough to have to comply with this regulation, my sympathies. In many respects, this provision of the Dodd-Frank Act embodies the best and worst of the regulatory reform effort we have seen since 2008.

First, the good intentions part. Congress passed section 1073 of the Dodd-Frank Act to help ensure that individuals who send international remittances electronically have protection against unscrupulous practices. Billions of dollars sent to countries like Mexico each year provide an important source of income for these countries. Before Dodd-Frank, there were no federal disclosure requirements, so, depending on the state from which you were sending money, you might have no way of knowing how much the transaction was going to cost you. New York, for example, has imposed disclosure requirements on money transmitters since at least 1979. As a result, section 1073 requires money transmitters, banks and credit unions to disclose in writing the amount of currency that will be received, the amount of transfer and other fees charged by the institution making the remittance transfer and a disclosure of the exchange rate to be used in making the transfer. The statute also requires the establishment of error resolution procedures that allow the sender to recoup mis-sent funds due to transmitter error.

Here’s where the bad drafting comes in. Did Congress really intend to make providers of remittances responsible for disclosing the amount that will be received by the recipient, including all taxes and fees, many of which can be imposed by institutions with which a credit union has no formal relationship located in countries with their own unique taxes? The CFPB says the answer is yes and originally made the provider of the remittance transfer (your credit union) responsible for informing the member about all taxes and fees, even though they may have no way to know what they are. Congress arguably anticipated this delimma by allowing banks and credit unions to estimate such taxes and fees during a transition period, but such estimates are difficult to come by and put the estimator at a disadvantage since estimates will generally be higher than the actual cost of the transaction.

This brings us to the pending regulations. The CFPB is proposing to allow the provider of a transfer to only disclose the cost of any national taxes imposed by the country where the recipient of the transfer is located. For example, if you are sending Rubles to Moscow, you won’t have to know about any taxes imposed by that city. This is a step in the right direction, but a common sense application of the statute would mandate that institutions providing the remittance transfer to disclose only those taxes and fees imposed within the U.S. I bet you didn’t know that Congress considers you an expert on foreign tax law.

One other aspect of the statute is currently under consideration by the CFPB. Credit unions would not have to reimburse members for mistakenly sending a remittance to the wrong account when it is the sender who provided the wrong information. This seems like common sense but the same exception wouldn’t apply in situations where the member gives the right account number but provides the wrong institution name. The CFPB seems to be assuming that it is fairly easy for banks and credit unions to reverse transactions where no money was actually placed in an account. There may be some truth to this, but why not place some responsibility on the member who actually wants to make the transfer. Dare to dream.